Why the stock market is falling

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At the start of the third bearish week, major equity indices hit an eight-week low on Sunday with turnover on the Dhaka Stock Exchange (DSE) shrinking to a nine-week low of Tk 788 crore.

During the second half of the session, investors rushed to sell all the shares they held.

At the end of the day, only 17 of the DSE scrips closed in green territory against a decline of 119 while 223 remained unchanged, mainly due to price floors that do not allow any trade below the respective levels.

Shocking to many on the street, it was an upside-down picture of the market that the same investors were chasing a month ago.

The DSEX, the primary stock exchange’s broad index, fell 4.97% from its September 20 swing peak to erase nearly half of the gains of the previous seven weeks.

Experts, however, are not at all surprised.

“The fall was not unexpected for me,” said Abu Ahmed, a former professor of economics at the University of Dhaka.

The market was not doing well even before the recent sell off, he said, adding that the August-September rally was based on highly controversial regulatory steroids – price floor, free spins on very few stocks allegedly manipulated by market cartels, while many stocks of fundamentally sound companies found no buyers on the floor.

The global economy is heading into a recession, the local economy is weakening, interest rates are rising, people affected by inflation are spending their savings, the money market is tightening daily and the sharp rise in costs is weighing on corporate earnings, except for that of a few strong companies, the professor added.

At such a stage, one can at best be cautiously betting on the stocks of the strongest companies while market participants picked smaller and weaker companies for the rallies, and when cartel members posted their profits, the steep fall is inevitable, said Professor Abu Ahmed.

Stocks that rose sharply during the latter leg of the market rally are experiencing a sharp sell-off, leaving average trend chasers struggling.

Shirajul Alam, a retail investor, said 285 of 396 DSE certificates were stuck on the ground on Sunday as recently trending stocks caused significant capital erosion over the past two weeks.

DSE Brokers’ Association Chairman Richard D Rozario told The Business Standard that when the stock market was grappling with the crisis of confidence and macroeconomic headwinds, the Bangladesh Securities and Exchange Commission (BSEC), at the start of the month, suddenly decided to stop the brokerage industry’s practice of accepting bank checks and allowing customers to buy stocks instantly.

This has eroded some instant buying power for investors as they have to wait a day or two after a check is issued, the brokerage community leader said, adding that his association had asked the regulator to reinstate the practice in good faith.

An analyst from a brokerage research team said: “Most importantly, it panicked investors who interpreted the regulatory stance as a warning or a punishment, unlike the recent face of the BSEC as an advocate. of a bull market.”

He himself had been watching macroeconomic updates and the stock market cautiously since the war in Ukraine broke out in February this year, as war hits nearly every corner of the global economy.

Optimistic investors who wanted an improvement in the global situation and a continuation of the resilience of the local economy that they observed during the pandemic are cautious, even fearful today, as they consider the decline in foreign exchange reserves, the drop in exports, soaring inflation which hurts consumption and businesses. .

The government’s recent honest and unexpected acknowledgment of tough times for the economy and food security is also hurting stock market investor confidence these days, the analyst said on condition of anonymity.

Professor Abu Ahmed said that the price floor does not allow stock prices to adjust to reality and this reduces the resilience of the market.

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